Some Democrats on the congressional supercommittee are proposing a $2.3 trillion deficit-reduction plan, including $1 trillion in tax increases with a so-called trigger that would raise $650 billion if the tax code isn’t revamped by Jan. 1, 2013, according to a document party members are circulating.
The trigger, according to the document, would kick in only if Congress doesn’t rewrite the tax code next year. Tax writers would receive instructions to cap individual tax rates at 35 percent, overhaul corporate taxation and maintain the progressivity currently in the code.
Democrats presented this offer to Republicans on Nov. 7 at a meeting at which Republican Pat Toomey of Pennsylvania presented his proposal that included some net tax increases, according to a Republican aide and a Democratic aide familiar with the plans.
Democrats and Republicans on the 12-member committee remain hundreds of billions of dollars apart on tax revenue with two weeks remaining until the committee’s deadline to reach agreement.
Michael Steel, spokesman for House Speaker John Boehner, said late today, “Right now we are waiting for a response to what the second-ranking Democratic leader in the Senate called 'a breakthrough,’ and we’ve seen nothing.”
Under the outline of the Democratic document, the supercommittee would cut the federal budget deficit by $2.3 trillion over the next decade, with $1 trillion each coming from spending and revenue and $300 billion from interest savings.
The Democrats say the plan is a working draft, and it shows that Democrats and Republicans may be moving closer on the revenue issue. In a previous proposal Democrats offered late last month, they had insisted on $1.3 trillion in additional tax revenue.
The revenue increases would start with what the document described as a $350 billion “down payment” of “miscellaneous revenue provisions.”
If Congress doesn’t agree to a tax-code overhaul, the trigger would generate $325 billion from a limit on itemized deductions for top earners. The proposal refers to an idea floated by Harvard professor Martin Feldstein, who said that individuals shouldn’t be able to claim itemized deductions valued at more than 2 percent of their adjusted gross income.
The remaining $325 billion would come from a surcharge on individual income before credits. Details of the surtax weren’t included in the document.
The Democratic plan also would include $350 billion in cuts to Medicare, with $250 billion from providers and $100 billion from beneficiaries. Another $200 billion in cuts would come from other mandatory programs. The plan would include $400 billion in cuts to discretionary programs, with $200 billion from defense and $200 billion from non-defense programs.
According to the document, the cuts in entitlement programs would take effect only upon enactment of the tax code overhaul or implementation of the trigger.
Republicans have proposed cutting the budget deficit by overhauling the tax code. Lawmakers are trying to break a partisan impasse over tax increases in exchange for spending cuts as the supercommittee seeks to cut at least $1.2 trillion from the budget deficit.
Toomey’s proposal would generate about $300 billion in additional tax revenue plus several hundred billion dollars in non-tax revenue increases such as asset sales.
That’s much less than the $1 trillion in revenue increases that Democrats are seeking.
A Republican aide said the Democratic proposal was a sign that the two sides aren’t close and that the Democratic tax proposal wouldn’t generate enough economic growth.
Congress set up the bipartisan panel in August in legislation that resolved a standoff over raising the federal debt limit. The supercommittee was instructed to create a 10- year plan to cut at least $1.5 trillion from the budget deficit by Nov. 23.
If the supercommittee can reach an agreement, its proposal would be subject to up-or-down votes in the House and Senate. The law requires automatic, across-the-board spending cuts in 2013 if Congress doesn’t pass the plan by Dec. 23.
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